Month: September 2019
Stable Money Implies an Inverted Yield Curve
Suppose we had stable money. It’s then obvious that long-term savers would prefer long-bonds to rolling over short bonds. If held to maturity, the long-bond guarantees a known rate of return and payout at the time it is bought while the rolling of short-term bonds exposes you to risk. Thus, in a regime of stable money, long-term savers should prefer long-bonds and the yield curve should normally be inverted. That’s the essence of an excellent post by John Cochrane:
If inflation is steady, long-term bonds are a safer way to save money for the long run. If you roll over short-term bonds, then you do better when interest rates rise, and do worse when interest rates fall, adding risk to your eventual wealth. The long-term bond has more mark-to-market gains and losses, but you don’t care about that. You care about the long term payout, which is less risky. (Throw out the statements and stop worrying.) So, in an environment with varying real rates and steady inflation, we expect long rates to be less than short rates, because short rates have to compensate investors for extra risk.
If, by contrast, inflation is volatile and real rates are steady, then long-term bonds are riskier. When inflation goes up, the short term rate will go up too, and preserve the real value of the investment, and vice versa. The long-term bond just suffers the cumulative inflation uncertainty. In that environment we expect a rising yield curve, to compensate long bond holders for the risk of inflation.
So, another possible reason for the emergence of a downward sloping yield curve is that the 1970s and early 1980s were a period of large inflation volatility. Now we are in a period of much less inflation volatility, so most interest rate variation is variation in real rates. Markets are figuring that out.
Most of the late 19th century had an inverted yield curve. UK perpetuities were the “safe asset,” and short term lending was risky. It also lived under the gold standard which gave very long-run price stability.
Existential risk and growth
Here is the abstract of a new paper by Leopold Aschenbrenner:
Technological innovation can create or mitigate risks of catastrophes—such as nuclear war, extreme climate change, or powerful artificial intelligence run amok—that could imperil human civilization. What is the relationship between economic growth and these existential risks? In a model of endogenous and directed technical change, with moderate parameters, existential risk follows a Kuznets-style inverted Ushape. This suggests we could be living in a unique “time of perils,” having developed technologies advanced enough to threaten our permanent destruction, but not having grown wealthy enough yet to be willing to spend much on safety. Accelerating growth during this “time of perils” initially increases risk, but improves the chances of humanity’s survival in the long run. Conversely, even short-term stagnation could substantially curtail the future of humanity. Nevertheless, if the scale effect of existential risk is large and the returns to research diminish rapidly, it may be impossible to avert an eventual existential catastrophe.
Bravo! 44 pp. of brilliant text, another 40 pp. of proofs and derivations, and rumor has it that Leopold is only 17 years old, give or take.
If you happen to know Leopold, please do ask him to drop me a line.
For the pointer I thank Pablo Stafforini.
Special Emergent Ventures tranche to study the nature and causes of progress
I am pleased to announce the initiation of a new, special tranche of the Emergent Ventures fund, namely to study the nature and causes of progress, economic and scientific progress yes but more broadly too, including social and cultural factors. This has been labeled at times “Progress Studies.”
Simply apply at the normal Emergent Ventures site and follow the super-simple instructions. Feel free to mention the concept of progress if appropriate to your idea and proposal. Here is the underlying philosophy of Emergent Ventures.
And I am pleased to announce that an initial award from this tranche has been made to the excellent Pseudoerasmus, for blog writing on historical economic development and also for high-quality Twitter engagement and for general scholarly virtue and commitment to ideas.
Pseudoerasmus has decided to donate this award to the UK Economic History Society. Hail Pseudoerasmus!
Tuesday assorted links
1. Daisy’s 90th birthday party.
2. More on movie theatres and popcorn.
4. Canine regulatory arbitrage, with bags (photos).
5. Intellectual property and the trade deficit (it’s the net asset position that matters!).
ASA Against Student Evaluations
Yesterday in Active Learning Works But Students Don’t Like It I pointed out that student evaluations do not correlate well with teacher effectiveness and may discourage teachers from using more effective but less student-preferred methods of teaching. Coincidentally the American Sociological Association issued a statement yesterday discouraging student evaluations for tenure and promotion decisions.
SETs are weakly related to other measures of teaching effectiveness and student learning (Boring, Ottoboni, and Stark 2016; Uttl, White, and Gonzalez 2017); they are used in statistically problematic ways (e.g., categorical measuresare treated as interval, response rates are ignored, small differences are given undue weight, and distributionsare not reported) (Boysen 2015; Stark and Freishtat 2014); and they can be influenced by course characteristics like time of day, subject, class size, and whether the course is required, all of which are unrelated to teaching effectiveness. In addition, in both observational studies and experiments, SETs have been found to be biased against women and people of color (for recent reviews of the literature, see Basow and Martin 2012 and Spooren, Brockx, and Mortelmans 2015).
Student evaluations mostly evaluate entertainment value but, as my colleague Bryan Caplan notes, given how boring most classes are, entertainment value is worth something! Thus, the ASA notes that student evaluations can be useful as a form of feedback.
Questions on SETs should focus on student experiences, and the instruments should be framed as an opportunity for student feedback, rather than an opportunity for formal ratings of teaching effectiveness.
Student evaluations are on their way out in Canada, as a tool for tenure and promotion. I expect the same here, at least on paper. The ASA is big on “holistic” measures of teacher evaluation as a replacement which strikes me as weaselly. I’d prefer more objective measures such as value added scores.
*Jewish Emancipation: A History Across Five Centuries*
That is the new and excellent book out by David Sorkin. I feel I have read many good books on Jewish history, and I don’t always see the marginal value of adding to that pile, but this one really delivered. Plenty more detail without losing any conceptual overview. Ever wonder what exactly happened to Jewish emancipation, and why, as the Napoleonic conquest of Europe was reversed? This is the place to go. By the way, in the middle of the eighteenth century there were more Jews in Curacao, Suriname and Jamaica than in all of the North American colonies combined.
You can order it here, worthy of my year-end “best non-fiction of the year” list.
Karachi, Pakistan bleg
Guidebooks on Karachi, at least in English, are rather hard to come by. So what should I see and do, and where should I eat? I thank you all in advice for your usual sage counsel.
(Expensive) markets in everything
Department store Neiman Marcus is helping people with their indecisiveness by selling asymmetrical jeans.
The $462 high-waisted jeans feature one skinny leg and one wide leg.
They can be bought in a medium blue color, ranging from sizes x-small to large.
Who again is the protector of your privacy?
Departments of Motor Vehicles in states around the country are taking drivers’ personal information and selling it to thousands of businesses, including private investigators who spy on people for a profit, Motherboard has learned. DMVs sell the data for an array of approved purposes, such as to insurance or tow companies, but some of them have sold to more nefarious businesses as well. Multiple states have made tens of millions of dollars a year selling data.
…The Virginia DMV has sold data to 109 private investigator firms, according to a spreadsheet obtained by Motherboard.
That is from Vice, via Jake Seliger, with much more at the link.
On the topic of privacy, increasingly I am starting to believe that the practice of the obituary is unethical. The dead person is already gone, and usually (not always) there is little at stake, other than satisfying reader curiosity. The newspaper collects information on you for years, and without any consent from you whatsoever. Then, right after what is the saddest day in the history of your family (you hope), they publish it all and distribute it to as many readers as possible. That is also when you have no opportunity to present a rebuttal or alternative perspective, and furthermore corrections to obituaries are not exactly widely read.
Surely all of those worried about Facebook and privacy will agree with me on this one, right? And I bet the newspapers will pick up on this crusade as well.
Monday assorted links
Active Learning Works But Students Don’t Like It
A carefully done study that held students and teachers constant shows that students learn more in active learning classes but they dislike this style of class and think they learn less. It’s no big surprise–active learning is hard and makes the students feel stupid. It’s much easier to sit back and be entertained by a great lecturer who makes everything seem simple.
Despite active learning being recognized as a superior method of instruction in the classroom, a major recent survey found that most college STEM instructors still choose traditional teaching methods. This article addresses the long-standing question of why students and faculty remain resistant to active learning. Comparing passive lectures with active learning using a randomized experimental approach and identical course materials, we find that students in the active classroom learn more, but they feel like they learn less. We show that this negative correlation is caused in part by the increased cognitive effort required during active learning. Faculty who adopt active learning are encouraged to intervene and address this misperception, and we describe a successful example of such an intervention.
The authors say that it can help to tell students in advance that they should expect to feel flustered but it will all work out in the end.
The success of active learning will be greatly enhanced if students accept that it leads to deeper learning—and acknowledge that it may sometimes feel like exactly the opposite is true.
I am dubious that this will bring students around. An alternative that might help is to discount student evaluations so that teachers don’t feel that they must entertain in order to do well on evaluations. As Brennan and Magness point out in their excellent Cracks in the Ivory Tower:
Using student evaluations to hire, promote, tenure, or determine raises for faculty is roughly on a par with reading entrails or tea leaves to make such decisions. (Actually, reading tea leaves would be better; it’s equally bullshit but faster and cheaper.)… the most comprehensive research shows that whatever student evaluations (SETs) measure, it isn’t learning caused by the professor.
Indeed, the correlation between student evaluations and student learning is at best close to zero and at worst negative. Student evaluations measure how well liked the teacher is. Students like to be entertained. Thus, to the extent that they rely on student evaluations, universities are incentivizing teachers to teach in ways that the students like rather than in ways that promote learning.
It’s remarkable that student evaluations haven’t already been lawsuited into oblivion given that student evaluations are both useless and biased.
*Never Enough: the neuroscience and experience of addiction*
That is the new and fascinating book by Judith Grisel, unlike most neuroscientists on these topics she has been addicted to many of the drugs she writes about, or at least has tried them “for real,” furthermore her book integrates her personal and scientific knowledge in a consistently interesting manner.
Here is one bit from early on:
The very definition of an addictive drug is one that stimulates the mesolimbic pathway, but there are three general axioms in psychopharmacology that also apply to all drugs:
1. All drugs act by changing the rate of what is already going on.
2. All drugs have side effects.
3. The brain adapts to all drugs that affect it by counteracting the drug’s effects.
And a tiny bit from the middle:
Excessive use of alcohol now results in about 3.3 million deaths around the world each year. In Russia and its former satellite states, one in five male deaths is caused by drinking. And in the United States during the period 2006 and 2010, excessive alcohol use was responsible for close to 90,000 deaths a year…
And finally:
…primates given ecstasy twice a day for four days (eight total doses) show reduction in the number of serotonergic neurons seven years later.
Definitely recommended, this will make my list for the year’s best non-fiction.
*A Beginner’s Guide to Japan*
“My colleague spends two hours a day making herself up,” my wife says, on her way to the department store where she works.
“She wants everyone to look at her?”
“No. She wants everyone not to.”
That is from the new Pico Iyer book, pleasing throughout. Here is an FT interview with Ayer about the book, and more. Don’t forget:
Anime is the natural expression of an animist world.
Sunday assorted links
What I’ve been reading and browsing
Ethan Pollock, Without the Banya We Would Perish: A History of the Russian Bathhouse. The title says it all, noting that without the banya I for one would not perish.
George Weigel, The Irony of Modern Catholic History: How the Church Rediscovered Itself & Challenged the Modern World to Reform. Always fascinating to see there is a whole ‘nother world of politics you hardly know (or care) about.
Eric D. Weitz, A World Divided: The Global Struggle for Human Rights in the Age of Nation-States, is indeed a history of human rights in theory but most of all in practice.
Katrina Forrester, In the Shadow of Justice: Postwar Liberalism and the Remaking of Political Philosophy covers how liberalism took egalitarian and Rawlsian turns in the 20th century. The author makes this seem more natural than I would take it to be.
David Bentley Hart, That All Shall Be Saved: Heaven, Hell & Universal Salvation, argues that from a Christian point of view all will be saved and none damned to eternal torment. Not my framework, but I am not going to push back against what I take to be a Pareto improvement.
I am an admirer of Yancey Strickler, of Kickstarter fame, he has a new book coming out This Could Be Our Future: A Manifesto for a More Generous World.